1. Second-Degree Price Discrimination with declining AC
$/Q
Consumer surplus is sum of triangles PAP1, ACF, CDG (not DHE) P P1 Q1
1st Block P2 Q2 P3 Q3
2nd Block
3rd Block
Second-degree price
discrimination is pricing
according to quantity
consumed--or in blocks. D MR A P0 Q0
Without discrimination: P = P0
and Q = Q0. With second-degree
discrimination there are three
prices P1, P2, and P3.
(e.g. electric utilities), not P4
Note at P2,P3 blocks, prices charged are
uniform; hence no question of falling MR; So, problem of
MR<MC doesn’t arise. B MC AC C F D G H P4 E
With blocks (P1, Q1), (P2,Q2), (P3,Q3), deadweight loss becomes zero Q4
Quantity
4th Block 33

2. Second-Degree Price Discrimination with U-shaped AC
$/Q
Profit-maximizing combination= (P2,Q2), if uniform price is charged P MC A1 P1 AC B2 A2 P2
In case of second-degree price
discrimination, price-block
combinations (P1,Q1), (P2,Q2),
(P3,Q3), (P4,Q4) are possible w/o
DWL. But if combinations stop at
(P3,Q3), then there will be some
DWL. Combination (P5,Q5) not
feasible as MC>P5. A3 B3 P3 B4 A4 P4 A5 P5 B5 AR MR Q Q1 Q2 Q3 Q4 Q5